Economist - American Reinvention

 

Recent years have seen persistent and chronic injury to a veteran world champion calling into question his competitive future. An aging Olympian about to prove his mettle on the world stage of London 2012? No, the American economy.

In fact, that on-going tournament also comes to London this week as Republican Party Presidential Nominee Mitt Romney arrives on UK shores to “walk down diplomatic carpet and not mess it up” (paywalled). His campaign strategy is a taken from straight from the Cobra Kai dojo of Karate Kid, – use underhanded tactics to win at all costs such as trying hammering on the wound of American economic failure pounded onto Obama the day he took office (the British do appreciate good irony). And perhaps the most prominent British magazine, The Economist, has its own assessment of the situation. It talks about a different ‘Kid’, the “Comeback Kid” (sub-title ‘America’s economy is once again reinventing itself’) painting a different picture of America’s resilience and adaptation in the face of the global economic failure achieved at the helm of Obama’s administration (thanks Hugh)…

  • “Almost the only thing on which Barack Obama and Mitt Romney, his Republican challenger, agree is that the economy is in a bad way…America’s economy is certainly in a tender state. But the pessimism of the presidential slanging-match misses something vital. Led by its inventive private sector, the economy is remaking itself. Old weaknesses are being remedied and new strengths discovered, with an agility that has much to teach stagnant Europe and dirigiste Asia…
  • Nonetheless, in the past three years that repair has proceeded fast…And because the Treasury and other regulators, unlike their euro-zone counterparts, chose to confront the rot in their financial system quickly, American banks have had to write off debts and raise equity faster than their peers. (Citigroup alone has flushed through some $143 billion of loan losses; no euro-zone bank has set aside more than $30 billion.) American capital ratios are among the world’s highest. And consumers have cut back, too: debts are now 114% of income.
  • New strengths have also been found. One is a more dynamic export sector. The weaker dollar helps explain why the trade deficit has shrunk from 6% of GDP in 2006 to about 4% today. But other, more permanent, shifts—especially the growth of a consuming class in emerging markets—augur well…
  • And American exporters are changing…A growing “app economy”, nurtured by Facebook, Apple and Google, which employs more than 300,000 people; its games, virtual merchandise and so on sell effortlessly across borders. Constrained by weakness at home and in Europe, even small companies are seeking a toehold in emerging markets. American manufacturers are recapturing some markets once lost to imports, and pioneering new processes such as 3D printing.
  • Meanwhile, what was once an Achilles heel is becoming a competitive advantage. America has paid dearly for its addiction to imported oil. Whenever West Texas Intermediate climbs above $100 per barrel (as it did in 2008, last year and again this year), growth suffers. But high prices have had an effect, restraining demand and stimulating supply. Net imports of oil this year are on track to be the lowest since 1995, and America should eventually become a net exporter of gas. Many countries have shale gas, but, as it did with the internet revolution, America leads in exploiting it. Federal money helped finance development of the “fracking” technology that makes shale gas accessible, just as it paid for the internet’s precursors. However its use was commercialised by a Texas wildcatter called George Mitchell, the sort of risk-taker America has in abundance. In Europe shale gas has been locked in by green rules and limited property rights. In America shale has already lowered consumers’ energy bills and, by displacing coal, carbon emissions.”
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